Fungal-induced seed germination is a phenomenon characteristic of mycorrhizal plants that produce dust-like seeds with only minimal nutritional reserves. In such systems, fungi trigger germination and/or subsidize development. We studied mycorrhizal germination in relation to mycorrhizal specificity in the Monotropoideae, a lineage of dust-seeded nonphotosynthetic plants that are dependent upon ectomycorrhizal fungi of forest trees. A total of 1695 seed packets, each containing two to five compartments with seeds from different sources, were buried for up to 2 years near known ectomycorrhizal fungi in six different native forest locations. Upon harvest, seedlings were analysed by cultivation-independent molecular methods to identify their mycorrhizal fungi. We report that (i) germination is only induced by the same fungus that associates with mature plants or by closely related congeners; (ii) seedlings associated with the latter fungi develop less than those associated with maternal fungal species in most settings; and (iii) exceptions to this pattern occur in allopatric settings, where novel plant–fungal associations can result in the greatest seedling development. We interpret these results as evidence of performance trade-offs between breadth of host range and rate of development. We propose that in conjunction with host-derived germination cues, performace trade-offs can explain the extreme mycorrhizal specificity observed at maturity. The allopatric exceptions support the idea that performance trade-offs may be based on a coevolutionary arms race and that host range can be broadened most readily when naïve fungal hosts are encountered in novel settings.